We get this question all the time, even though acquiring a new customer can cost many times more than retaining one that you already have.

Nowadays, businesses are so focused on gaining new clients, they end up neglecting their existing ones and it’s costing them dearly. According to a Bain & Company study, it costs 6 to 7 times more to attract new customers than it does to keep them. The easiest way to grow your customers is not to lose them. However, that doesn’t mean ignoring your customer acquisition plans and solely focusing on retention strategies.

I’ve spent the past years working with companies across a range of industries, taking a look at their ecommerce funnel and figuring out what channels are the most sustainable for bringing in new customers and making returning ones more profitable.

Now I’m going to share with you a guide to customer acquisition & retention, which includes examples of how the process works, as well as the hidden gems and tactics that you can try out to improve your costs and add more to your bottom line.

What are Customer Acquisition and Retention?

Acquisition and retention are two sides of the same coin – the first gains new customers, while the other helps customers continue to buy or not “defect” to another product or business – and it’s vital that you focus your efforts on both.

It’s not a matter of choosing between them, so much as deciding which of them you should focus more on at the current moment.

Whether you should focus more on customer acquisition or retention depends primarily on what stage of development your ecommerce store is at.

If you’re just starting out, getting customers is your main objective. Once you’ve gained some traction, you can start to introduce some retention elements.

Creating a positive experience keeps customers and prospects engaged with your company and product and drives them away from your competition, in the long run.

At the opposite end of the spectrum stand established eCommerce stores that are looking for ways to continue to grow. If you’re in this situation, ask yourself – when was the last time you actually made an effort to re-engage your existing customers?

To help you understand and improve your customer acquisition and retention, I’ve touched on a few strategies and tactics that can be the inspiration you need to take your sales to the next level. One of the most difficult parts of scaling a business is figuring out which channel is the most sustainable in terms of acquisition & retention.

In this guide, I’ll show you how we use Google Shopping, Bing Ads and Remarketing on Instagram and Facebook, channels that have the potential to deliver the most value. The idea is to help you discover new growth opportunities within channels you’re already using or give you an idea of new channels you’ve yet to utilize.

1. Start by Analysing your eCommerce Funnel: What Are You Missing?

From acquisition to retention and repeat – what do you currently do?

The first step is always to evaluate your existing approach. Your eCommerce Funnel is a great starting point.

As you look at the top half, representing Customer Acquisition, then at the bottom half, representing Customer Retention, ask yourself – what are you currently doing for each step and how can it be improved?

What is your acquisition strategy?

What is your customer retention strategy?

How do you move customers down the funnel?

Do you execute activities on each channel?

What metrics are you following for customer acquisition & retention?

Identify the methods you’re using OR not using. For each of them, you should have a series of designated activities running on different channels.

Understanding your needs and figuring out when and where to advertise is crucial in creating a robust marketing plan, ready for execution.

I’ve detailed a step-by-step program in our “Where Should You Advertise?” article. It will help you gain an understanding of your needs and your market opportunity, and then design an approach combining these services that will best meet your objectives.

Next up, we’re taking a look at what to measure, which channels, methods and tactics to use and what examples and tips you should take into account for each step of your eCommerce funnel.

Everything you need to know, just a click away. Contact us today & we’ll help you improve your paid shopping campaigns.

Measure your Customer’s Lifetime Value

When it comes to understanding your clients, Customer Lifetime Value is easily the most important metric.

A purchase should only be the start of your selling process. Over the years, I’ve seen so many cases where businesses do an excellent job of making the initial sale, then drop the ball and get complacent, ignoring the customer, to only chase new clients.

Understand that there’s a vast difference between a one-off profit made from a single sale and the total aggregate profit your average customer represents over the course of their entire relationship with you. It’s about taking the bigger picture into account.

What is Customer Lifetime Value?

Tracking, measuring and monitoring Customer Lifetime Value means using your database to measure sales by customer. It assigns a score to customers based on the recency, frequency and monetary value of their purchases.

The higher the lifetime value, the more you can invest in retaining that customer.

Don’t just stop at measuring individual sales. To lock in that sale, and all of the referrals and repeat business that will flow from it, you need to strike while the iron is hot to ensure retention.

Once you recognize how much the total combined profit your average customer represents over the lifetime of their business relationship with you, you’ll realize that taking care of your customers truly pays off in the long run and helps you build a business over time.

How to calculate Customer Lifetime Value

CLV can be calculated historically, over specific time periods, or it can be predictive. Each of these calculations serves different purposes.

What you’re looking for is how much do your paying customers actually spend throughout their relationship with you. To figure that out, you can use a calculator or a formula:

In this case, lifespan is the maximum duration that you want to take into account for a customer. This really depends on the products you sell.

Gross Margin is what you’re left with after paying for the cost of goods sold (product cost, shipping, and handling fees etc).

Understanding your Customer Lifetime Value

Just like most marketing expenses, the way you assess CLV varies according to your business’s long-term strategies.

For example, VC funded companies, where immediate profitability is not the goal, but who are rather looking to have a higher growth rate may afford to consider a longer CLV.

It can also depend on your cash flow, whether you’ve got access to external funds to sustain growth, but also the product you’re selling. Maybe you’re in a niche where repeat purchases are not customary. Some products are fit to be re-ordered, like beauty products, or golf balls. These types of businesses should also be able to consider a greater CLV.

Another aspect to consider when calculating Customer Lifetime Value and Customer Acquisition Cost is your refund rate. Since neither Google Ads or Facebook actually take refunds into account, you could use Google Analytics to upload a transaction list and update your reports.

However, this tactic has proved unreliable in the past, so the easiest way would be to integrate your returns rate in the CLV and CAC formulas.

2. Improve Your Customer Acquisition Funnel

Finding profitable new customers and increasing the value of your current ones is the goal. The way to do it is by analyzing your market opportunity and identifying your most promising segments.

When looking at the Marketing Hourglass, it’s important to keep in mind that the customer doesn’t necessarily go straight from one stage to another.

They may return to prior levels or jump ahead, so we can’t assume that, by the end, they will have fulfilled each and every single. That should be reflected in your marketing tactics.

Looking at ideas for customer acquisition, take into account stages and how they can integrate your strategies.

Get found

The Awareness, Knowledge and Interest stages are how your products get found by your customers. Do they like your brand/product? Is it relevant to them? Do they want to hear more?

These top of the funnel stages are where you build demand for your product or service through tactics such as brand advertising, PR and social media.

The objective is to help customers discover you, have a positive interaction and for them to be open for more engagement in the future.

Don’t focus on the sale, or giving specific details. Instead, focus on showing the value of your product by providing educational content and building a relationship with your future customer.

The metrics to look out for in these stages are brand awareness, reach, engagement and website traffic levels.

Convert

The next steps, Consideration, Intent, and Purchase, are all about leading the customer towards conversion.

Once they’re willing to learn more about you and your products, you can focus on delivering more targeted content that addresses their specific pain points. The objective here is for customers to realize that they have a problem for which you’re offering a solution.

Focus on demand generation through promotions, social media endorsements and leading your customers down your website sales funnel.

In these stages, you should be highlighting key benefits, capabilities, and differentiators and measuring metrics such as purchase intent and conversions.

Plan & establish the best channels for each of the customer acquisition steps:

Get Found: Use PPC and social media to reach customers where they already are

The initial engagement stages are all about casting a net that’s wide enough to deliver value to the audience, but not too wide as to attract too many unqualified users.

71% of customers begin their research with a search engine. 41% of clicks go to the top paid ads on the search results page. Research is a critical stage in the acquisition process and PPC advertising helps get you ahead of the competition, right where your customers are looking.

Choosing the right mix of channels that work for you is incredibly important. It all depends on your goals:

Interested in reaching new relevant customers? Facebook Ads may be the social platform that works best for you.

If you’re just getting started, our step-by-step program “Where Should You Advertise?” takes you through how and why each of the 4 of the most powerful platforms for retail marketers could be the best choice for you.

Convert with Remarketing and Google Shopping Ads

The final stages are where you need to trigger the customer into action. One way to do that is through remarketing campaigns on Google Ads and Facebook Ads, as well as through Google Shopping.

Take remarketing – when a user visits a product page but doesn’t add anything to their basket, they see ads with your products while they are browsing the web, encouraging them to return to your online store.

It’s a great way of reaching customers in the final stages of the sales funnel.

Similarly, Google Shopping campaigns can boost product visibility and lead to more conversions, while taking full advantage of your website’s potential.

I always tell our clients that services like Google Shopping or Facebook Ads are more than just a sales platform. They’re a customer acquisition strategy themselves.

Most users hold back and only see them as purely transactional, even though each generated sale is a new user with his/her own Customer Lifetime Value and Customer Acquisition Cost.

Popular Customer Acquisition Tactics & Methods

Brand awareness through Facebook Ads

Social media channels are prime real-estate for your company to generate awareness and a great place to start your customer acquisition strategy. It’s your chance to show off your brand and products and develop a cohesive brand message.

Facebook is the social platform with the highest number of monthly active users. Using its paid platform, Facebook Ads, is a great way to reach your target audience when you want to:

Generate demand for your products

Increase your brand awareness

Re-engage site visitors or past customers

Generate engagement with new audiences through contests, promotions, etc.

Expand your customer base with Amazon Sponsored Product Ads

Maybe you’re already a vendor or seller on Amazon and are just looking to expand your horizons. Then Amazon Sponsored Product Ads are for you.

If you’re already a vendor or seller on the platform, Amazon Sponsored Products give you the opportunity of having your products listed higher up, ahead of your competitors, with much higher visibility.

Selling in the US? Start Bing Ads

PPC Bing Ad campaigns reach over 31% of the market. This Google Ads alternative has huge potential and the best news is that you can import your campaigns so you don’t have to start from scratch.

3. Improve Your Customer Retention Funnel

Once your customer has converted, your first instinct would be to pat yourself on the back and move on to the next one. That would be a mistake.

Without a customer retention strategy in place, you’ll likely lose many of your customers.

Here’s why customer retention is important: stats show that if you retain just 5% of your customers annually, you can generate up to 125% more profits. Retention strategies truly pay off in the long run and help you build a sound business over time.

Keeping customers, or retention should be equally if not more important than acquisition.

Within the Marketing Hourglass we’ve followed, stages like Repeat and Preference are where you should focus on customer onboarding and engagement and marketing towards your database.

Instill loyalty by delighting them with useful tailored content, as well as refill and referral initiatives.

In terms of measuring, metrics such as satisfaction and cross purchase are most relevant.

The final stages are those focused on proliferation, meaning the Loyalty, Referral/Endorsement and Advocacy/Evangelism stages. This happens when your customers become something more – they turn into fans that talk about and refer you to their friends.

Bringing customers to this stage is extremely valuable. Not only have they purchased from you, but they’re willing to do it again and brag about you on social media.

Loyalty or reward programs work great in these stages, and it’s a great time to collect testimonials for your website.

Plan & establish the best channels for each of the customer retention step:

Nurture with Facebook Ads

Keep in contact with your most loyal customers by targeting them on social media. Do they need a refill? Would they be willing to write a review or provide a testimonial?

Facebook’s custom audiences can help you target relevant customers and even find ones that are similar, through “Lookalike” audiences.

Analyze & retain customers with Remarketing Ads

Once you have data on the pages and products your clients prefer, it doesn’t hurt to remind them of their favorites from time to time.

Both on Google, as well as on Facebook, remarketing ads can be a great tool in encouraging repeat purchases and reminding your customers of the positive experience you’ve offered them in the past.

You can even take it a step further with Google Ads’ Dynamic Remarketing using product listing ads. It allows you to create custom dynamic ads that remind your customer of items they’ve previously seen or bought.

Loyalty & brand ambassador programs

Referral marketing is one of the most effective tactics on the market right now. Think about it – aren’t you more willing to buy a product if you hear about it from a friend you trust?

Starting an affiliate or loyalty program where customers get incentives for referring you will also delight your customers by showing them that you care. They also increase purchase frequency by motivating customers to purchase more often, in order to earn valuable rewards.

A Grower and Seller of Seed Products Sees 5x Increase in Revenue with Adfix PPC Campaigns. See the full case study.

Popular Customer Retention Tactics & Ideas

Convincing customers to come backrests on your ability to show them why a repeat purchase is worth their time and money.

Now that you understand some of the basics about retention, let’s take a closer look at some more popular retention tactics. These tactics support the strategies listed above and will help keep customers coming back to your business for more:

Reduce shopping cart abandonment

Don’t let your cart abandonment rate discourage you. Use the potential of remarketing by targeting users who have added products to their cart, but haven’t completed the sale.

Create customized ads that address issues like price or shipping information, or any other reason why your customers might not have finalized their order.

Cross-sell related products

Let’s say you’re running an eCommerce that focuses on golf clubs and accessories. The way cross-selling works is by anticipating the clients’ next move.

Once your clients have already bought invested in a golf club, targeting them with additional golf clubs would yield few results. Instead, try selling them golf balls, which are a consumable product and will have them constantly coming back for more.

This strategy can also be implemented by remarketing, using Google Ads. Just create a remarketing list of people who have already converted and target them with ads that are related to their purchases.

Create Buyer Personas to target your audience more accurately

Sales are about knowing your ideal customers’ main points and anticipating their needs.

Let’s say you’ve got an art supply store.

Building buyer personas according to the type of paint you’re selling can help you cross-sell more by planning a dynamic ongoing customer retention strategy and using personalized communications to increase the lifetime value of your customer base.

In this example, paints act like a type of gateway. An interest for certain types of paints may be relevant for canvases, or brushes, or can be used for printing. Try assigning them a higher Customer Acquisition Cost and using your website to feature complementary products on the product or check out pages.

Defining your target market can also help you improve your PPC targeting. Not all 1.2 billion Facebook users are going to be your potential customers, so having Buyer Personas can help you target them by location, gender, age, likes and interests, relationship status, workplace, education, and more.

Novelty products

Even if you’re selling a novelty product, considering Customer Acquisition Cost and Customer Lifetime Value can make a world of a difference. Is your product only a personal purchase or can it be bought as a gift? Does it relate to hobbies and can it be referred to other people?

If so, try starting a frequent shopper or loyalty program based on offering discounts for referrals. Make rewards easy to obtain and friendly to redeem. It’s a strategy that gets your customers to advertise for you, which will lower your Customer Acquisition Cost and increase your Customer Lifetime Value, in the long run.

4. Take a Look at Your Costs on Acquisition & Retention

In order to be profitable, your Customer Lifetime Value should always be greater than your Customer Acquisition Cost. You’re essentially trying to spend less to keep your clients more.

How to Track and Lower Your Acquisition Costs

The cost of customer acquisition can be broken down into a simple formula:

Cost of acquiring new customers / Number of customers acquired

For example, if you spend $10,000 in a year on marketing and acquire 100 customers, then your Customer Acquisition Cost would be $100.

The longer the timeframe you’re considering, the more you’ll be able to spend on customer acquisition. Let’s say you’re taking into account a 3-month Customer Lifetime Value and the average price point of your products is $50. If one client makes a purchase every month, then they’ll have a $150 Customer Lifetime Value and you’ll be able to spend just as much on them as acquisition costs, in advertising.

If your business is an eCommerce store, the ultimate goal is to boost your revenue. In which case, there’s one more metric you should focus on: Average Order Value.

Focusing on Average Order Value lets you improve the profitability of your PPC ad, thereby affecting your overall acquisition costs.

Here is how to calculate it:

AOV = Total revenue/no. of orders

One strategy to increase average order value is by advertising products in bulk, instead of individually to existing customers. Products that work well together (think outfits, instead of just one top or one pair of shoes) sell well together.

How to Improve Your Retention Costs

Track your retention rates

Understanding the numbers can help you improve customer retention. Figure out how many of your customers are new versus returning using Google Analytics or by implementing a customer relationship management (CRM) system.

Having data like this can help you serve your customers better and improve retention costs in the long run.

Don’t overspend

Handing out discounts and freebies can be tempting, but also costly and a perpetual race to the bottom that conditions customers to expect dropping prices.

Try limiting discounts to first time buyers, as a great way to encourage them to purchase. It can also be effective in bringing back customers who haven’t purchased in a while.

Improve customer experience

A single negative experience is enough to drive away some of your customers. Make sure your customer support team is trained and ready to resolve issues quickly and efficiently.

Choose the right platform

The best way to improve your customer retention efforts is to utilize the marketing channels that 1. they prefer and 2. perform best for you.

Pick the channel that makes the most sense for your business, whether it’s a highly visual one such as Facebook or Instagram, or one based on detailed information like Google Ads text ads.

By now, we’ve figured out that customers are the most important part of a company. Without them, there would be no business.

So do we continue to spend most of our marketing budget on finding new ones or do we focus on nurturing the ones we already have? Being on a tight budget means that the percentage spent on acquiring new customers versus keeping existing ones counts.

Is 50-50 really the right number?

Why is customer acquisition important?

Finding new customers can be complicated. But increasing your customer base is still the fastest way of growing your business and reaching your short-term goals.

Customer acquisition is one of the main drivers of a business and the main reason why inbound marketing is experiencing a rapid growth in the industry. These types of tools are great for attracting new customers.

Why is customer retention important?

Every business needs new customers. But sometimes the easiest and most predictable solution for new revenue is right under your nose: existing customers that already know your company. Up-selling to an existing customer can prove more lucrative than spending time trying to acquire a new one.

Existing customers achieve better conversion rates at a lower cost of marketing. You’re spending less time and money to find them and convince them to buy from you.

Author: Bogdan Chertes

Bogdan has helped dozens of ecommerce businesses grow sales and acquire more customers by using data driven PPC marketing strategies. At Adfix, he leads a team of top class PPC and Social Media experts that help clients maximize ROI from their campaigns.